Tradability and productivity growth differentials across EU Member States

• Published in: Structural change and economic dynamics Vol. 50; pp. 1 - 13
• Main Authors: Friesenbichler, Klaus S., Glocker, Christian
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01-09-2019
• Subjects: Growth; Institutions; Labor productivity; Structural change; Tradability; O47; Labor productivity; Growth; E02; E01; Tradability; Institutions; E60; Structural change; O43
• ISSN: 0954-349X; 1873-6017
• DOI: 10.1016/j.strueco.2019.04.009

•We utilize the tradable-nontradable framework (T-NT) to assess the lack of convergence in labor productivity among EU Member States.•We find that tradable sectors are a substantial determinant of aggregate labor productivity, much more so than nontradables.•We identify a link between sectoral productivity growth asymmetries and the quality of domestic governance institutions.•Differences in the legal system help to explain the observed productivity growth differentials.
We apply the tradable-nontradable framework (T-NT) to evaluate the lack of convergence in labor productivity among EU Member States. Our results show that increases in overall productivity are primarily due to the tradable and not the nontradable sectors of production. The low productivity growth in peripheral EU countries before the crisis was accompanied by a sharp increase in the production of nontradables (i.e. nontradable goods and services) relative to other EU countries. We identify differences in the legal systems and the quality of public institutions, among others, as factors relevant for explaining the observed productivity growth differentials. Our findings have implications for the European Commission’s macroeconomic imbalance procedures since the T-NT approach allows identifying patterns of real divergence on a disaggregated level.